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4000 - Advisory Opinions

FDIC Determinations in Application to Become an Insured Bank


June 10, 1988

Roger A. Hood, Assistant General Counsel

At our meeting on May 12, you asked to be advised as to the position of FDIC with respect to the eligibility of *** to become an insured bank, within the provisions of the Federal Deposit Insurance Act, and whether we could identify any other legal impediments which would prevent the FDIC from processing *** application to become an insured bank.

*** is organized as a District Bank under the laws of the District of Columbia, and it is not a member of the Federal Reserve System. Its authority to operate a bank-of-deposit business stems from authority granted to it by the Comptroller of the Currency.

Section 5 of the Federal Deposit Insurance Act (12 USC 1815) provides that any state nonmember bank, upon application to and examination by the Corporation and approval by the Board of Directors, may become an insured bank. The term "State nonmember bank" is defined in section 3(b) of the FDI Act (12 USC 1813(b)) to mean any State bank which is not a member of the Federal Reserve System. The term "State bank" is, in turn, defined in section 3(a) of the FDI Act (12 USC 1813(a)) to include any bank which is operating under the Code of Law of the District of Columbia (except a national bank). Reading these provisions together, it appears to be beyond question that the Federal Deposit Insurance Act contemplates that District banks are a category of institution which may obtain the benefits of federal deposit insurance.

At our meeting, reference was made to the litigation (which has since been dismissed) wherein the *** challenged the regularity of a charter issued to another financial institution under circumstances similar to those under which charter was issued. You asked whether FDIC, in connection with an application by *** to become an insured bank, would challenge the regularity of *** corporate charter. It is not the practice of the FDIC to challenge the regularity of an applicant bank's corporate charter which is regular on its face. Accordingly, so long as *** charter is recognized by the District of Columbia as a valid corporate charter for an entity which, at the time, was one which could be authorized by the Comptroller of the Currency to conduct a bank-of-deposit business in the District of Columbia, and so long as that charter has not been declared invalid by a court of competent jurisdiction, it will be recognized by the FDIC ***

When the application was previously pending, there were concerns that the powers which *** may exercise if it should become an insured bank are not sufficiently circumscribed so as to permit an analysis of the factors of capital adequacy or management. You may wish to explore with the New York Regional Office the possibility of limiting the functions to be exercised by *** in some way so that that office will be able to make appropriate judgments on the capital adequacy and management factors which, under section 6 of the FDI Act, must be considered in connection with any application by a state bank (including a District bank) to become an insured bank.

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